Morning Trade: Trump sees possible deal with Xi

TRUMP SEES POSSIBLE DEAL WITH XI: President Donald Trump told the Financial Times in an interview published Sunday that he would press Chinese President Xi Jinping during their meeting at Mar-a-Lago this week to do more to rein in North Korea's nuclear ambitions and also held out the possibility of the two reaching some kind of deal despite his heavy criticism of China's trade surplus and exchange rate policy.

"I have great respect for him," Trump said. "I have great respect for China. I would not be at all surprised if we did something that would be very dramatic and good for both countries, and I hope so." Trump added that the U.S. is prepared to move unilaterally on North Korea if China is unwilling to increase pressure on Pyongyang. "Well, if China is not going to solve North Korea, we will. That is all I am telling you," he said.

Trump appeared to suggest he thought China might be agreeable to do more on North Korea to maintain good trade relations with the U.S. "I think trade is the incentive. It is all about trade," he said. But the president also said he did not expect to discuss the possibility of increased U.S. tariffs on Chinese goods this week in Palm Beach. "I don't want to talk about tariffs yet, perhaps the next time we meet," Trump said.

One of Xi's main objectives this week will be to be burnish his reputation back home, as he looks toward a two-stage process, beginning this fall, to secure second terms as leader of China's Communist Party and president of the country, analysts said.

"Obviously President Xi ... must show that he can manage the most important bilateral relationship - frankly, not just manage it, but do his best to control it," Christopher Johnson, a senior advisor at the Center for Strategic and International Studies, told reporters on Friday. Trump's bellicose rhetoric and decision to tap China trade hawk Robert Lighthizer as U.S. trade representative have made the Chinese "very fearful about the trade and economic shoe dropping sooner rather than later," Johnson added.

Xi's meeting with Trump, set for Thursday and Friday at Trump's Florida resort, can be seen as one in a series of high-profile events this year as he moves to lock down his position as China's "core leader." Those include hosting a large international forum in May related to China's "One Belt, One Road" foreign economic development initiative, as well as a BRICS meeting with other major developing-country leaders and a military parade this summer to mark the 90th anniversary of the People's Liberation Army.

"I suspect that Xi is a very confident fellow, and probably thinks he's going to come in and sort of get one over on President Trump," Johnson said. "I suspect President Trump thinks he's going to get one over on President Xi. So it'll be interesting to see how that dynamic plays out."

For his part, Trump has set the stage for what he says will be a "difficult" meeting by launching an investigation into the causes of the huge U.S. trade deficit with China and by beginning another inquiry that is expected to find that Beijing should not be treated as market economy under U.S. trade law.

IT'S MONDAY, APRIL 3! Welcome to Morning Trade, where your host wants to give a special shoutout to everyone who ran the Cherry Blossom Ten-Miler on Sunday, and an extra-special one to anyone who stopped to take part in the free beer and Oreos that were being given out at mile 7. Any trade news out there to kick off the week, or to help me get my mind off these sore muscles? Let me know: mcassella@politico.com or @mmcassella.

GUATEMALA AGREES TO EARLY POULTRY TARIFF ELIMINATION: USTR is set to announce today that Guatemala has agreed to eliminate its 12.5 percent tariff on U.S. fresh, frozen and chilled poultry products four-and-a-half years earlier than expected under the U.S.-Central American-Dominican Republic free trade agreement, approved by Congress in 2005.

The deal, which USTR is describing as a victory for President Trump's "America First" trade policy, opens the door for increased sales to what is already the sixth-largest U.S. poultry export market. Last year, Guatemala imported $82 million of U.S. processed chicken leg quarters, representing about 8 percent of $1.1 billion in total agricultural imports from the U.S.

The CAFTA-DR agreement established import tariff-rate quotas for poultry through the first 12 years of the pact, which ends on December 31. It then required annual consultations to determine access levels for years 13 through 18, when the pact is fully implemented. The U.S. initiated talks with Guatemala in February and the two countries signed a deal to eliminate tariffs on fresh, frozen and chilled poultry last week, a USTR official said.

Guatemala also agreed to establish a tariff-rate quota for processed chicken leg quarters that will allow 1,000 metric tons to enter duty-free each year through December 2021, when both the quota and remaining tariffs will be eliminated. The U.S. already has a 98 percent share of the import market for processed chicken leg quarters in Guatemala, which is by far the largest importer of the product in the CAFTA-DR region.

HOLLEYMAN: MAKE WAY FOR TPP PROVISIONS IN NAFTA 2.0: Hard-fought gains that the Obama administration negotiated in the Trans-Pacific Partnership, which ranged frome-commerce provisions to transparency rules, must be preserved in any renegotiation of NAFTA - but fitting them into a plan that Mexico and Canada will agree to is not going to be easy, Robert Holleyman, a former deputy U.S. trade representative under President Barack Obama, will say in a speech later today.

"The new negotiating challenge for the U.S. should not be underestimated," Holleyman will say during a speech at Georgetown's McCourt School of Public Policy, according to prepared remarks provided to Morning Trade. "The wider gains across the Pacific that TPP offered will not be available to Canada and Mexico in a NAFTA-only negotiation."

Holleyman notes that the "first renegotiation of NAFTA" was actually completed in October 2015, when the TPP was finalized. But the reason that initial effort was successful - and the reason USTR was able to "avoid making concessions" - was in part because of the "potential multiplying 'network effects'" of the Asia-Pacific pact, he will say. "Without that sweetener on the table, the pressure of the new negotiation will be high," he will add.

And while it's clear NAFTA needs to be renegotiated, Holleyman will note: "The big open question is whether the administration's 'America First' policy means the U.S. only? Or does it leave room to include our North American neighbors - Mexico and Canada?"

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TRUMP TRADE ERA BEGAN FRIDAY: Thus declared Commerce Secretary Wilbur Ross on Friday in talking about the new executive order directing Commerce and USTR to investigate the causes of significant deficits in bilateral trade agreements and another to stop undercollection of anti-dumping and countervailing duties. "This marks the beginning of a totally new chapter in the American trade relationship with our partners overseas," Ross said.

However, the final language in the trade deficit order appeared slightly different than Ross described to reporters on Thursday night, when he said it would examine, among other issues, whether certain bilateral trade deficits were the result of free trade agreements falling short of expectations or of World Trade Organization rules placing constraints on the U.S. Neither of those points was mentioned in the EO.

The order also doesn't explicitly mention examining whether the deficits are caused by currency misalignment or lax U.S. enforcement, two other criteria Ross listed. But it does direct the administration to examine to what degree the bilateral deficits are caused by "tariffs, non-tariff barriers, injurious dumping, injurious government subsidization, intellectual property theft, forced technology transfer, denial of worker rights and labor standards, and any other form of discrimination against the commerce of the United States." More on the executive orders here.

LET'S TALK ABOUT TIMING: The 90-day examination period mandated under the order began on Friday with its signing and will end on June 29, a Thursday that falls just over a week before Trump heads to his first Group of 20 summit in Germany. "That is already prompting angst among some G20 partners," Nate Olson, director of the Stimson Center's Trade21 initiative, wrote in an email. "It could well end up making the summit even more complicated for Trump himself."

It's worth noting that administration officials have stressed that the results of the review will be submitted within 90 days, and could drop earlier. "We may very well come up with some interim findings," Ross said in an interview on Bloomberg TV on Friday. "It's not required that we use the whole 90 days."

ROSS MUM ON TRUMP'S USE OF CHINESE STEEL: In his earlier life as a developer, Trump used Chinese steel for Trump-branded construction projects in Las Vegas and Chicago. With the new executive orders on the books, CNN's Jake Tapper asked Secretary Ross on Sunday whether it was a mistake for Trump to use steel and aluminum that had been illegally dumped in the U.S. for those projects.

"Well, first of all, developers don't actually buy the steel," Ross said on CNN's "State of the Union" on Sunday. "They hire contractors. The contractors put the project out to bid. And the contractors are trying to get the lowest price. The problem with the whole dumping thing is not on the buying side.

"The problem is that other nations are dumping product at unfairly low prices," he continued. "That's what needs to be corrected, not the behavior of the contractor."

ROSS RAMPS UP WTO TALK: Asked in a Bloomberg interview whether the administration would be working within the confines of the WTO as it begins to focus more on enforcement of anti-dumping and countervailing duties, Ross chided the agency for what he viewed as an outdated and negative attitude toward trade remedies.

The WTO's annual report "describes almost universally anything by way of countervailing duties or any sort of trade remedy as protectionist," he said, adding that it "doesn't focus on the idea" that there are more trade cases because "there are more countries practicing violative behavior."

Trump made waves last year for threatening to pull the U.S. out of the WTO if it stood in the way of his more radical trade moves. He's been more measured as president, though his administration did reassert in the annual trade policy review, released late last month, that the U.S. has the right not to abide by adverse WTO decisions against its trade practices.

"The World Trade Organization has been in being for a very, very long time, and it's quite conceivable that there's some modernization needed of some of their processes and also of their mindset," Ross said.

ROSS' OLIVE BRANCH TO THE TPP: That was the indication Ross gave on Friday when Bloomberg asked whether aspects of the Pacific Rim trade deal were going to live on via renegotiation of NAFTA or in other trade deals. "We're obviously not going to throw the baby out with the bathwater," he said. "We view the concessions that were granted in the TPP by those countries as the starting point by which we will attempt to build." View the full interview here.

LAWMAKERS PUSH TRUMP TO TURN TO TOKYO: A dozen house lawmakers are calling on the administration to take action on its plans to pursue a bilateral trade deal with Japan, filing a resolution in the House of Representatives "supporting the pursuit of closer trade ties" between the two nations. Led by Rep. Adrian Smith , a Nebraska Republican whose home state exports significant levels of beef around the world, the resolution has gained 11 co-sponsors and is hopeful about the prospects of adding more this week. Pork producers flying into Capitol Hill for a lobbying event this week plan to make the resolution one of their priority items, bringing more attention to the issue, a Smith aide told Morning Trade.

"We cannot afford to miss this opportunity, especially for U.S. agriculture producers," Smith wrote in a column that published in local Nebraska newspapers over the weekend. "President Trump has continually stressed his determination to strengthen U.S. trade negotiations, and I urge the administration to craft an agreement with Japan which is in our country's best interest and opens doors for U.S. agriculture."

CHINESE INVESTMENTS IN U.S. AEROSPACE STILL ON THE RUNWAY: Chinese investment in the U.S. aerospace industry has increased over the past decade but has done little to impact the competitiveness or security of U.S. companies or technology because of export and foreign investment regulations, according to a study commissioned by the U.S.-China Economic and National Security Review Commission.

The study from the RAND Corporation found that Chinese companies have averaged one to two investments in U.S. aviation per year over the past decade, including 12 mergers and acquisitions, three joint ventures, and nine other agreements or failed deals.

"The combination of Chinese government policy to become globally competitive in aviation and the availability of capital drives these investments, but they are constrained by U.S. government foreign investment and export laws as well as classic business concerns about return on investment," the study says.

The study also found that the nature of the investments, primarily in general aviation interests, carried few technology-transfer concerns. The main benefits of those investments to China's industry focused mainly on the business-process side, such as international marketing, achieving Federal Aviation Administration safety certifications, and product support.

BILL TO PROTECT SMALL BUSINESSES' IP RESURFACES: A bipartisan duo reintroduced legislation in the Senate on Friday to help small businesses protect their intellectual property, in part by offering outreach programs in obtaining and protecting domestic and international patents. Sens. Gary Peters (D-Mich.) and Jim Risch (R-Idaho) first pushed the Small Business Innovation Protection Act in the last Congress, where it passed the Small Business and Entrepreneurship Committee, which Risch chairs.

"Thousands of small businesses rely on our patent system to protect the core of their business and it is imperative that small inventors continue to have faith in that system," Risch said in a statement. "This legislation will make it easier to train and equip America's small business owners with the resources and information necessary to obtain and protect their patents."

A final goodbye to Clayton Yeutter: This week will end on a somber note as a memorial service for Clayton Yeutter will be held on Saturday in Bethesda, Md. Yeutter was United States trade representative under President Ronald Reagan (1985-89) and Agriculture secretary under President George H.W. Bush (1989-91), not to mention a short stint in 1991 as chairman of the Republican National Committee. He died March 4 at age 86 following a four-year battle with colon cancer. A who's who in the ag policy world is expected to gather for the service, scheduled for 2 p.m. at Fourth Presbyterian Church, 5500 River Rd. More details here.

INTERNATIONAL OVERNIGHT

- The European Union has sketched out an interim trade deal with the United Kingdom that vastly restricts British services like aviation and finance, POLITICO Pro reports.

- Canada is hoping to seize on China's new free-trade talk by pushing for deeper economic ties with Beijing, Bloomberg reports.

- Even as Trump claims to have saved thousands of manufacturing and factory jobs across the United States, globalization is moving on unhindered, Bloomberg Businessweek reports.

- U.S. ports are joining forces and pooling resources as consolidation across the industry threatens to cut some cities out of global shipping routes, the Wall Street Journal reports.

- Africa's trade deficit with the rest of the world has fallen to its lowest level in three years amid rising commodity prices, the Financial Times reports.

- India is dragging its feet in talks surrounding the Regional Comprehensive and Economic Partnership, the China-led alternative to TPP, raising the chances the deal gets watered down or delayed, Bloomberg reports.

- In light of the recently signed free trade agreement between the EU and Canada, the state of Maine wants the U.S. government to act to ensure U.S. lobster exports can still compete overseas, the Concord Monitor reports.

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